Five Forces Model
Based Upon Michael E. Porter’s Work
Contents
1
2
3
Michael Porter
1
1.1
Early life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
1.2
Career . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
1.2.1
Competition among nations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
1.2.2
Healthcare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
1.2.3
Consulting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
1.2.4
Non-profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
1.3
Honors and awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
1.4
Criticisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
1.5
Works . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
1.6
See also . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
1.7
References
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
1.8
External links . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
Porter five forces analysis
5
2.1
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
2.1.1
Threat of new entrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
2.1.2
Threat of substitute products or services . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6
2.1.3
Bargaining power of customers (buyers) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6
2.1.4
Bargaining power of suppliers
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6
2.1.5
Intensity of competitive rivalry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
2.2
Usage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
2.3
Criticisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
2.4
See also . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
2.5
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8
2.6
Further reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8
Five forces
Porter’s generic strategies
9
3.1
Concept . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9
3.2
Origins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
i
ii
4
5
CONTENTS
3.3
Cost Leadership Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
3.4
Differentiation Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11
3.4.1
Variants on the Differentiation Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11
3.5
Focus strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11
3.6
Recent developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12
3.7
Criticisms of generic strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12
3.8
See also . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13
3.9
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13
Competitive advantage
14
4.1
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14
4.2
Generic competitive strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14
4.2.1
Cost leadership strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14
4.2.2
Differentiation strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15
4.2.3
Innovation strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15
4.2.4
Operational effectiveness strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15
4.3
See also . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15
4.4
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15
4.5
Further reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16
4.6
External links . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16
Value chain
17
5.1
Firm-level . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17
5.1.1
Primary activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18
5.1.2
Support activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18
5.1.3
Physical, virtual and combined value chain . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18
5.2
Industry-level . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18
5.3
Global value chains (GVCs)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19
5.3.1
Cross border / cross region value chains . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19
5.3.2
Global value chains (GVCs) in development . . . . . . . . . . . . . . . . . . . . . . . . . . .
19
5.4
Significance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19
5.5
Use with other Analysis Tools
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20
5.6
SCOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20
5.7
Value Reference Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20
5.8
See also . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20
5.9
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21
5.10 Further reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21
5.11 External links . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21
5.12 Text and image sources, contributors, and licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22
CONTENTS
iii
5.12.1 Text . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22
5.12.2 Images . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23
5.12.3 Content license . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23
Chapter 1
Michael Porter
For the American wrestling ring announcer, see Michael inspired the Porter five forces analysis framework for anaPorter (professional wrestling). For the Australian rules lyzing industries.[3]
footballer, see Michael Porter (footballer). For the English
footballer, see Mick Porter.
Michael Eugene Porter (born May 23, 1947)[2] is the
Bishop William Lawrence University Professor at The Institute for Strategy and Competitiveness, based at the Harvard
Business School. He is a leading authority on competitive
strategy and the competitiveness and economic development of nations, states, and regions. Michael Porter’s work
is recognized in many governments, corporations and academic circles globally. He chairs Harvard Business School’s
program dedicated for newly appointed CEOs of very large
corporations.
1.2
Career
Michael Porter is the author of 18 books and numerous
articles including Competitive Strategy, Competitive Advantage, Competitive Advantage of Nations, and On Competition. A six-time winner of the McKinsey Award for the
best Harvard Business Review article of the year, Professor
Porter is the most cited author in business and economics.[4]
Porter stated in a 2010 interview: “What I've come to see as
probably my greatest gift is the ability to take an extraordinarily complex, integrated, multidimensional problem and
get arms around it conceptually in a way that helps, that informs and empowers practitioners to actually do things.”[3]
1.1 Early life
Michael Eugene Porter received a BSE with high honors in
aerospace and mechanical engineering from Princeton University in 1969, where he graduated first in his class and was
1.2.1 Competition among nations
elected to Phi Beta Kappa and Tau Beta Pi. He received an
MBA with high distinction in 1971 from Harvard Business
School, where he was a George F. Baker Scholar, and a PhD Porter wrote “The Competitive Advantage of Nations” in
1990. The book is based on studies of ten nations and arin business economics from Harvard University in 1973.
gues that a key to national wealth and advantage was the
Porter said in an interview that he first became interested in productivity of firms and workers collectively, and that the
competition through sports. He was on the NCAA cham- national and regional environment supports that productivpionship golf squad at Princeton and also played football, ity. He proposed the “diamond” framework, a mutuallybaseball and basketball growing up.[3]
reinforcing system of four factors that determine national
Porter credits Harvard professor Roland “Chris” Chris- advantage: factor conditions; demand conditions; related
tensen with inspiring him and encouraging him to speak up or supporting industries; and firm strategy, structure and riduring class, hand-writing Porter a note that began: “Mr. valry. Information, incentives, and infrastructure were also
Porter, you have a lot to contribute in class and I hope you key to that productivity.[5]
will.” Porter reached the top of the class by the second year During April 2014, Porter discussed how the United States
at Harvard Business School.[3]
ranks relative to other countries on a comprehensive scoreAt Harvard, Porter took classes in industrial organization card called “The Social Progress Index”, an effort which he
economics, which attempts to model the effect of compet- co-authored.[6] This scorecard rated the U.S. on a compreitive forces on industries and their profitability. This study hensive set of metrics; overall, the U.S. placed 16th.[7]
1
2
CHAPTER 1. MICHAEL PORTER
1.2.2
Healthcare
1.2.4
Non-profit
foundations in the area of creating social value. He also
currently serves on the Board of Trustees of Princeton UniPorter has devoted considerable attention to understanding versity.
and addressing the pressing problems in health care delivery
in the United States and other countries. His book, Redefining Health Care (written with Elizabeth Teisberg), devel- 1.3 Honors and awards
ops a new strategic framework for transforming the value
delivered by the health care system, with implications for
In 2000, Michael Porter was appointed a Harvard Univerproviders, health plans, employers, and government, among
sity Professor, the highest professional recognition that can
other actors. The book received the James A. Hamilton
be awarded to a Harvard faculty member.[10] In 2009, he
award of the American College of Healthcare Executives
was awarded an honorary degree from McGill University.
in 2007 for book of the year. His New England Journal
of Medicine research article, “A Strategy for Health Care
Reform—Toward a Value-Based System” (July 2009), lays
out a health reform strategy for the U.S. His work on health 1.4 Criticisms
care is being extended to address the problems of health
care delivery in developing countries, in collaboration with Porter has been criticized by some academics for inconDr. Jim Yong Kim and the Harvard Medical School and sistent logical argument in his assertions.[11] Critics have
Harvard School of Public Health.
also labeled Porter’s conclusions as lacking in empirical
support and as justified with selective case studies. They
have also claimed that Porter fails to credit original cre1.2.3 Consulting
ators of his postulates originating from pure microeconomic
theory.[4][12][13][14] Others have argued Porter’s firm-level
In addition to his research, writing, and teaching, Porter analysis is widely misunderstood and mis-taught.[15]
serves as an advisor to business, government, and the social
sector. He has served as strategy advisor to numerous leading U.S. and international companies, including Caterpil1.5 Works
lar, Procter & Gamble,[8] Scotts Miracle-Gro, Royal Dutch
Shell, and Taiwan Semiconductor. Professor Porter serves
on two public boards of directors, Thermo Fisher Scientific Competitive Strategy
and Parametric Technology Corporation. Professor Porter
also plays an active role in U.S. economic policy with the
• Porter, M.E. (1979) “How Competitive Forces Shape
Executive Branch and Congress, and has led national ecoStrategy”, Harvard Business Review, March/April
nomic strategy programs in numerous countries. He is cur1979.
rently working with the presidents of Rwanda and South
• Porter, M.E. (1980) Competitive Strategy, Free Press,
Korea.
New York, 1980. The book was voted the ninth most
Michael Porter is one of the founders of The Monitor
influential management book of the 20th century in
Group, a strategy consulting firm that came under scrutiny
a poll of the Fellows of the Academy of Managein 2011 for its past contracts with the Muammar Gaddafiment.[16]
led regime in Libya and alleged failure to register its activities under the Foreign Agents Registration Act. In 2013
• Porter, M.E. (1985) Competitive Advantage, Free
Monitor was sold to Deloitte Consulting through a strucPress, New York, 1985.
tured bankruptcy proceeding.
• Porter, M.E. (ed.) (1986) Competition in Global Industries, Harvard Business School Press, Boston, 1986.
Michael Porter has founded three major non-profit organizations: Initiative for a Competitive Inner City – ICIC[9] in
1994, which addresses economic development in distressed
urban communities; the Center for Effective Philanthropy,
which creates rigorous tools for measuring foundation effectiveness; and FSG-Social Impact Advisors, a leading
non-profit strategy firm serving NGOs, corporations, and
• Porter, M.E. (1987) “From Competitive Advantage
to Corporate Strategy”, Harvard Business Review,
May/June 1987, pp 43–59.
• Porter, M.E. (1996) “What is Strategy”, Harvard Business Review, Nov/Dec 1996.
• Porter, M.E. (1998) On Competition, Boston: Harvard
Business School, 1998.
1.6. SEE ALSO
• Porter, M.E. (1990, 1998) “The Competitive Advantage of Nations”, Free Press, New York, 1990.
• Porter, M.E. (1991) “Towards a Dynamic Theory of
Strategy”, Strategic Management Journal, 12 (Winter
Special Issue), pp. 95–117. http://onlinelibrary.wiley.
com/doi/10.1002/smj.4250121008/abstract
• McGahan, A.M. & Porter, M.E. Porter. (1997)
“How Much Does Industry Matter, Really?" Strategic
Management Journal, 18 (Summer Special Issue),
pp. 15–30. http://onlinelibrary.wiley.com/doi/10.
1002/(SICI)1097-0266(199707)18:1%2B%3C15::
AID-SMJ916%3E3.0.CO;2-1/abstract
• Porter, M.E. (2001) “Strategy and the Internet”,
Harvard Business Review, March 2001, pp. 62–78.
3
• Rhatigan, Joseph, Sachin H Jain, Joia S. Mukherjee,
and Michael E. Porter. “Applying the Care Delivery
Value Chain: HIV/AIDS Care in Resource Poor Settings.” Harvard Business School Working Paper, No.
09-093, February 2009.
1.6
See also
• Cluster development
• Marketing strategies
• National Diamond
• Strategic planning
• Porter, M.E. & Kramer, M.R. (2006) “Strategy and
Society: The Link Between Competitive Advantage
and Corporate Social Responsibility”, Harvard Business Review, December 2006, pp. 78–92.
• Strategic management
• Porter, M.E. (2008) “The Five Competitive Forces
That Shape Strategy”, Harvard Business Review, January 2008, pp. 79–93.
• Smart, Connected Products
• Porter, M.E. & Kramer, M.R. (2011) “Creating
Shared Value,” Harvard Business Review, Jan/Feb
2011, Vol. 89 Issue 1/2, pp 62–77
• Porter, M.E. & Heppelmann, J.E. (2014) “How Smart,
Connected Products are Transforming Competition”,
Harvard Business Review, November 2014, pp 65–88
Domestic Health Care
• Porter, M.E. & Teisberg, E.O. (2006) “Redefining
Health Care: Creating Value-Based Competition On
Results”, Harvard Business School Press, 2006.
• Berwick, DM, Jain SH, and Porter ME. “Clinical Registries: The Opportunity For The Nation.” Health Affairs Blogs, May 2011.
• Social Progress Index
• Techno cluster
1.7
References
[1] http://hbr.org/2008/01/
the-five-competitive-forces-that-shape-strategy/ar/1
[2] date & year of birth, full name according to LCNAF CIP
data
[3] Kiechel, Walter (2010). The Lords of Strategy. Harvard
Business Press. ISBN 978-1-59139-782-3.
[4] False Expectations of Michael Porter’s Strategic Management Framework, by Omar AKTOUF, Dr. HEC Montréal
[5] Porter, Michael E. Porter (1990). The Competitive Advantage of Nations. Free Press. ISBN 0-684-84147-9.
[6] CNN-GPS with Fareed Zakaria-Michael Porter on GPS: Is
the U.S. #1? April 20, 2014
[7] Social Progress Imperative.Org - Retrieved May 2014
Global Health Care
[8] Playing to Win: How Strategy Really Works. Harvard Business Review Press.
• Jain SH, Weintraub R, Rhatigan J, Porter ME, Kim JY.
“Delivering Global Health”. Student British Medical [9] “Initiative for a Competitive Inner City”.
Journal 2008; 16:27.[1]
[10] Colvin, Geoff (October 29, 2012). “There’s No Quit in
Michael Porter”. Fortune 166 (7): 162–166.
• Kim JY, Rhatigan J, Jain SH, Weintraub R, Porter
ME. “From a declaration of values to the creation of [11] Sharp, Byron; Dawes, John (1996), “Is Differentiation Opvalue in global health: a report from Harvard Univertional? A Critique of Porter’s Generic Strategy Typology,”
sity’s Global Health Delivery Project”. Global Public
in Management, Marketing and the Competitive Process,
Peter Earl, Ed. London: Edward Elgar.
Health. 2010 Mar; 5(2):181-8.
4
CHAPTER 1. MICHAEL PORTER
[12] Speed, Richard J. (1989), “Oh Mr Porter! A Re-Appraisal
of Competitive Strategy,” Marketing Intelligence and Planning, 7 (5/6), 8–11.
[13] Yetton, Philip, Jane Craig, Jeremy Davis, and Fred Hilmer
(1992), “Are Diamonds a Country’s Best Friend? A Critique
of Porter’s Theory of National Competition as Applied to
Canada, New Zealand and Australia,” Australian Journal of
Management, 17 (No. 1, June), 89–120.
[14] Allio, Robert J. (1990), “Flaws in Porter’s Competitive Diamond?,” Planning Review, 18 (No. 5, September/October),
28–32.
[15] Spender, J.-C., & Kraaijenbrink, Jeroen. (2011). Why
Competitive Strategy Succeeds - and With Whom. In
Robert Huggins & Hiro Izushi (Eds.), Competition, Competitive Advantage, and Clusters: The Ideas of Michael
Porter (pp. 33-55). Oxford: Oxford University Press.
[16] Bedeian, Arthur G.; Wren, Daniel A. (Winter 2001).
“Most Influential Management Books of the 20th Century” (PDF). Organizational Dynamics 29 (3): 221–225.
doi:10.1016/S0090-2616(01)00022-5.
1.8 External links
• Michael Porter currently leads the Institute for Strategy and Competitiveness at Harvard Business School
– Accessed October 15, 2012
• Porter proposals for reforming the delivery of health
care – Accessed October 15, 2012
• Summary Biography from Global Leaders
• Biography at Harvard Business School Faculty Pages
– Accessed October 15, 2012
• Porter Prize
• Michael Porter’s Author profile and bibliography from
Shelfari – Accessed October 15, 2012
Chapter 2
Porter five forces analysis
Threat
of New Entrants
Bargaining Power of Suppliers
have been able to make a return in excess of the industry
average.
Industry
Rivalry
Porter’s five forces include - three forces from 'horizontal' competition: the threat of substitute products or services, the threat of established rivals, and the threat of new
entrants; and two forces from 'vertical' competition: the
bargaining power of suppliers and the bargaining power of
customers.
Threat
of Substitutes
Porter developed his Five Forces analysis in reaction to
the then-popular SWOT analysis, which he found unrigorous and ad hoc.[1] Porter’s five forces is based on the
Structure-Conduct-Performance paradigm in industrial orA graphical representation of Porter’s five forces
ganizational economics. It has been applied to a diverse
range of problems, from helping businesses become more
Porter five forces analysis is a framework that attempts profitable to helping governments stabilize industries.[2]
to analyze the level of competition within an industry and Other Porter strategic frameworks include the value chain
business strategy development. It draws upon industrial or- and the generic strategies.
ganization (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness
of an Industry. Attractiveness in this context refers to the
overall industry profitability. An “unattractive” industry is 2.1 Five forces
one in which the combination of these five forces acts to
drive down overall profitability. A very unattractive in- 2.1.1 Threat of new entrants
dustry would be one approaching “pure competition”, in
which available profits for all firms are driven to normal
Profitable markets that yield high returns will attract new
profit. This analysis is associated with its principal innovafirms. This results in many new entrants, which eventually
tor Michael E. Porter of Harvard University.
will decrease profitability for all firms in the industry. UnPorter referred to these forces as the micro environment, to less the entry of new firms can be blocked by incumbents
contrast it with the more general term macro environment. (which in business refers to the largest company in a cerThey consist of those forces close to a company that affect tain industry, for instance, in telecommunications, the tradiits ability to serve its customers and make a profit. A change tional phone company, typically called the “incumbent opin any of the forces normally requires a business unit to re- erator”), the abnormal profit rate will trend towards zero
assess the marketplace given the overall change in industry (perfect competition).
information. The overall industry attractiveness does not
The following factors can have an effect on how much of a
imply that every firm in the industry will return the same
threat new entrants may pose:
profitability. Firms are able to apply their core competencies, business model or network to achieve a profit above
the industry average. A clear example of this is the air• The existence of barriers to entry (patents, rights,
line industry. As an industry, profitability is low and yet
etc.). The most attractive segment is one in which enindividual companies, by applying unique business models,
try barriers are high and exit barriers are low. Few new
Bargaining Power of Buyers
5
6
CHAPTER 2. PORTER FIVE FORCES ANALYSIS
firms can enter and non-performing firms can exit eas- 2.1.3
ily.
• Government policy
Bargaining power of customers (buyers)
• Product differentiation
The bargaining power of customers is also described as the
market of outputs: the ability of customers to put the firm
under pressure, which also affects the customer’s sensitivity
to price changes. Firms can take measures to reduce buyer
power, such as implementing a loyalty program. The buyer
power is high if the buyer has many alternatives. The buyer
power is low if they act independently e.g. If a large number
of customers will act with each other and ask to make prices
low the company will have no other choice because of large
number of customers pressure.
• Brand equity
Potential factors:
• Capital requirements
• Absolute cost
• Cost disadvantages independent of size
• Economies of scale
• Economies of product differences
• Switching costs or sunk costs
• Expected retaliation
• Access to distribution
• Customer loyalty to established brands
• Industry profitability (the more profitable the industry
the more attractive it will be to new competitors)
2.1.2
Threat of substitute products or services
• Buyer concentration to firm concentration ratio
• Degree of dependency upon existing channels of distribution
• Bargaining leverage, particularly in industries with
high fixed costs
• Buyer switching costs relative to firm switching costs
• Buyer information availability
• Force down prices
• Availability of existing substitute products
The existence of products outside of the realm of the common product boundaries increases the propensity of cus• Buyer price sensitivity
tomers to switch to alternatives. For example, tap water
might be considered a substitute for Coke, whereas Pepsi
• Differential advantage (uniqueness) of industry prodis a competitor’s similar product. Increased marketing for
ucts
drinking tap water might “shrink the pie” for both Coke
• RFM (customer value) Analysis
and Pepsi, whereas increased Pepsi advertising would likely
“grow the pie” (increase consumption of all soft drinks), al• The total amount of trading
beit while giving Pepsi a larger slice at Coke’s expense. Another example is the substitute of traditional phone with a
smart phone.
2.1.4 Bargaining power of suppliers
Potential factors:
The bargaining power of suppliers is also described as the
market of inputs. Suppliers of raw materials, components,
• Buyer propensity to substitute
labor, and services (such as expertise) to the firm can be
• Relative price performance of substitute
a source of power over the firm when there are few substitutes. If you are making biscuits and there is only one
• Buyer switching costs
person who sells flour, you have no alternative but to buy it
• Perceived level of product differentiation
from them. Suppliers may refuse to work with the firm or
• Number of substitute products available in the market charge excessively high prices for unique resources.
• Ease of substitution
• Substandard product
Potential factors are:
• Quality depreciation
• Supplier switching costs relative to firm switching
costs
• Availability of close substitute
• Degree of differentiation of inputs
2.3. CRITICISMS
• Impact of inputs on cost or differentiation
• Presence of substitute inputs
• Strength of distribution channel
• Supplier concentration to firm concentration ratio
• Employee solidarity (e.g. labor unions)
• Supplier competition: the ability to forward vertically
integrate and cut out the buyer.
2.1.5
Intensity of competitive rivalry
For most industries the intensity of competitive rivalry is the
major determinant of the competitiveness of the industry.
7
2.3
Criticisms
Porter’s framework has been challenged by other academics
and strategists such as Stewart Neill. Similarly, the likes of
ABC, Kevin P. Coyne and Somu Subramaniam have stated
that three dubious assumptions underlie the five forces:
• That buyers, competitors, and suppliers are unrelated
and do not interact and collude.
• That the source of value is structural advantage (creating barriers to entry).
• That uncertainty is low, allowing participants in a market to plan for and respond to competitive behavior.[4]
An important extension to Porter was found in the work of
Adam Brandenburger and Barry Nalebuff of Yale School
of Management in the mid-1990s. Using game theory, they
• Sustainable competitive advantage through innovation
added the concept of complementors (also called “the 6th
force”),
helping to explain the reasoning behind strategic
• Competition between online and offline companies
alliances. Complementors are known as the impact of re• Level of advertising expense
lated products and services already in the market. [5] The
idea that complementors are the sixth force has often been
• Powerful competitive strategy
credited to Andrew Grove, former CEO of Intel Corpora• Firm concentration ratio
tion. According to most references, the sixth force is government or the public. Martyn Richard Jones, whilst con• Degree of transparency
sulting at Groupe Bull, developed an augmented 5 forces
model in Scotland in 1993. It is based on Porter’s model
and includes Government (national and regional) as well
2.2 Usage
as Pressure Groups as the notional 6th force. This model
was the result of work carried out as part of Groupe Bull's
Strategy consultants occasionally use Porter’s five forces Knowledge Asset Management Organisation initiative.
framework when making a qualitative evaluation of a firm's Porter indirectly rebutted the assertions of other forces,
strategic position. However, for most consultants, the by referring to innovation, government, and complemenframework is only a starting point or “checklist.” They tary products and services as “factors” that affect the five
might use value chain or another type of analysis in forces.[6]
conjunction.[3] Like all general frameworks, an analysis that
uses it to the exclusion of specifics about a particular situa- It is also perhaps not feasible to evaluate the attractiveness
of an industry independent of the resources a firm brings to
tion is considered naive.
that industry. It is thus argued (Wernerfelt 1984)[7] that this
According to Porter, the five forces model should be used theory be coupled with the Resource-Based View (RBV) in
at the line-of-business industry level; it is not designed to order for the firm to develop a much more sound strategy.
be used at the industry group or industry sector level. An It provides a simple perspective for accessing and analyzindustry is defined at a lower, more basic level: a market ing the competitive strength and position of a corporation,
in which similar or closely related products and/or services business or organization.
are sold to buyers. (See industry information.) A firm that
competes in a single industry should develop, at a minimum,
one five forces analysis for its industry. Porter makes clear
2.4 See also
that for diversified companies, the first fundamental issue
in corporate strategy is the selection of industries (lines of
• Coopetition
business) in which the company should compete; and each
line of business should develop its own, industry-specific,
• National Diamond
five forces analysis. The average Global 1,000 company
• Value chain
competes in approximately 52 industries (lines of business).
Potential factors:
8
CHAPTER 2. PORTER FIVE FORCES ANALYSIS
• Porter’s four corners model
• Industry classification
• Nonmarket forces
• Economics of Strategy
2.5 References
[1] Michael Porter, Nicholas Argyres, Anita M. McGahan, “An
Interview with Michael Porter”, The Academy of Management Executive 16:2:44 at JSTOR
[2] Michael Simkovic, Competition and Crisis in Mortgage Securitization
[3] Tang, David (21 October 2014). “Introduction to Strategy
Development and Strategy Execution”. Flevy. Retrieved 2
November 2014.
[4] Kevin P. Coyne and Somu Subramaniam, “Bringing discipline to strategy”, The McKinsey Quarterly, 1996, Number
4, pp. 14-25
[5] http://www.investopedia.com/terms/s/six-forces-model.
asp
[6] Michael E. Porter. “The Five Competitive Forces that Shape
Strategy”, Harvard Business Review, January 2008, p.86104. PDF
[7] Wernerfelt, B. (1984), A resource-based view of the firm,
Strategic Management Journal, Vol. 5, (April–June): pp.
171-180
2.6 Further reading
• Coyne, K.P. and Sujit Balakrishnan (1996),Bringing
discipline to strategy, The McKinsey Quarterly, No.4.
• Porter, M.E. (March–April 1979) How Competitive
Forces Shape Strategy, Harvard Business Review.
• Porter, M.E. (1980) Competitive Strategy, Free Press,
New York, 1980.
• Porter, M.E. (2008) The Five Competitive Forces That
Shape Strategy, Harvard business Review, January
2008.
• Ireland, Hoskisson, Understanding Business Strategy.
SOUTH WESTERN.
• Rainer and Turban, Introduction to Information Systems (2nd edition), Wiley, 2009, pp 36–41.
• Kotler Philip, Marketing Management, Prentice-Hall,
Inc. 1997
• Mintzberg, Ahlstrand and Lampel,Strategy Safari
1998.
Chapter 3
Porter’s generic strategies
Porter’s generic strategies describe how a company pursues competitive advantage across its chosen market scope.
There are three/four generic strategies, either lower cost,
differentiated, or focus. A company chooses to pursue one
of two types of competitive advantage, either via lower costs
than its competition or by differentiating itself along dimensions valued by customers to command a higher price.
A company also chooses one of two types of scope, either focus (offering its products to selected segments of the
market) or industry-wide, offering its product across many
market segments. The generic strategy reflects the choices
made regarding both the type of competitive advantage and
the scope. The concept was described by Michael Porter in
1980.[1]
gies, product differentiation strategies, and market focus
strategies.[1]
Porter described an industry as having multiple segments
that can be targeted by a firm. The breadth of its targeting refers to the competitive scope of the business. Porter
defined two types of competitive advantage: lower cost
or differentiation relative to its rivals. Achieving competitive advantage results from a firm’s ability to cope
with the five forces better than its rivals. Porter wrote:
"[A]chieving competitive advantage requires a firm to make
a choice...about the type of competitive advantage it seeks
to attain and the scope within which it will attain it.” He
also wrote: “The two basic types of competitive advantage
[differentiation and lower cost] combined with the scope
of activities for which a firm seeks to achieve them lead to
three generic strategies for achieving above average performance in an industry: cost leadership, differentiation and
focus. The focus strategy has two variants, cost focus and
differentiation focus.”[2] In general:
3.1 Concept
S TR ATE GIC TA R GE T
STRATEGIC ADVANTAGE
Industrywide
Uniqueness Perceived
by the Customer
Low Cost Position
DIFFERENTIATION
OVERALL
COST LEADERSHIP
• If a firm is targeting customers in most or all segments
of an industry based on offering the lowest price, it is
following a cost leadership strategy;
• If it targets customers in most or all segments based
on attributes other than price (e.g., via higher product quality or service) to command a higher price, it
is pursuing a differentiation strategy. It is attempting
to differentiate itself along these dimensions favorably
relative to its competition. It seeks to minimize costs
in areas that do not differentiate it, to remain cost competitive; or
STUCK IN THE MIDDLE
Particular
Segment Only
FOCUS
Michael Porter’s Three Generic Strategies
• If it is focusing on one or a few segments, it is following
Porter wrote in 1980 that strategy target either cost leada focus strategy. A firm may be attempting to offer a
ership, differentiation, or focus.[1] These are known as
lower cost in that scope (cost focus) or differentiate
Porter’s three generic strategies and can be applied to any
itself in that scope (differentiation focus).[2]
size or form of business. Porter claimed that a company
must only choose one of the three or risk that the business
would waste precious resources. Porter’s generic strate- The concept of choice was a different perspective on stratgies detail the interaction between cost minimization strate- egy, as the 1970s paradigm was the pursuit of market share
9
10
(size and scale) influenced by the experience curve. Companies that pursued the highest market share position to
achieve cost advantages fit under Porter’s cost leadership
generic strategy, but the concept of choice regarding differentiation and focus represented a new perspective.[3]
3.2 Origins
Empirical research on the profit impact of marketing strategy indicated that firms with a high market share were often
quite profitable, but so were many firms with low market
share. The least profitable firms were those with moderate
market share. This was sometimes referred to as the hole
in the middle problem. Porter’s explanation of this is that
firms with high market share were successful because they
pursued a cost leadership strategy and firms with low market
share were successful because they used market segmentation to focus on a small but profitable market niche. Firms
in the middle were less profitable because they did not have
a viable generic strategy.
Porter suggested combining multiple strategies is successful
in only one case. Combining a market segmentation strategy with a product differentiation strategy was seen as an
effective way of matching a firm’s product strategy (supply
side) to the characteristics of your target market segments
(demand side). But combinations like cost leadership with
product differentiation were seen as hard (but not impossible) to implement due to the potential for conflict between
cost minimization and the additional cost of value-added
differentiation.
CHAPTER 3. PORTER’S GENERIC STRATEGIES
high return on investment, the firm must be able to operate
at a lower cost than its rivals. There are three main ways to
achieve this.
The first approach is achieving a high asset utilization. In
service industries, this may mean for example a restaurant
that turns tables around very quickly, or an airline that turns
around flights very fast. In manufacturing, it will involve
production of high volumes of output. These approaches
mean fixed costs are spread over a larger number of units
of the product or service, resulting in a lower unit cost, i.e.
the firm hopes to take advantage of economies of scale and
experience curve effects. For industrial firms, mass production becomes both a strategy and an end in itself. Higher
levels of output both require and result in high market share,
and create an entry barrier to potential competitors, who
may be unable to achieve the scale necessary to match the
firms low costs and prices.
The second dimension is achieving low direct and indirect
operating costs. This is achieved by offering high volumes
of standardized products, offering basic no-frills products
and limiting customization and personalization of service.
Production costs are kept low by using fewer components,
using standard components, and limiting the number of
models produced to ensure larger production runs. Overheads are kept low by paying low wages, locating premises
in low rent areas, establishing a cost-conscious culture, etc.
Maintaining this strategy requires a continuous search for
cost reductions in all aspects of the business. This will include outsourcing, controlling production costs, increasing
asset capacity utilization, and minimizing other costs including distribution, R&D and advertising. The associated
distribution strategy is to obtain the most extensive distribution possible. Promotional strategy often involves trying
to make a virtue out of low cost product features.
Since that time, empirical research has indicated companies pursuing both differentiation and low-cost strategies
may be more successful than companies pursuing only one
The third dimension is control over the value chain encomstrategy.[4]
passing all functional groups (finance, supply/procurement,
Some commentators have made a distinction between cost
marketing, inventory, information technology etc..) to enleadership, that is, low cost strategies, and best cost stratesure low costs.[5] For supply/procurement chain this could
gies. They claim that a low cost strategy is rarely able to
be achieved by bulk buying to enjoy quantity discounts,
provide a sustainable competitive advantage. In most cases
squeezing suppliers on price, instituting competitive bidfirms end up in price wars. Instead, they claim a best cost
ding for contracts, working with vendors to keep invenstrategy is preferred. This involves providing the best value
tories low using methods such as Just-in-Time purchasing
for a relatively low price.
or Vendor-Managed Inventory. Wal-Mart is famous for
squeezing its suppliers to ensure low prices for its goods.
Other procurement advantages could come from preferen3.3 Cost Leadership Strategy
tial access to raw materials, or backward integration. Keep
in mind that if you are in control of all functional groups
This strategy involves the firm winning market share by ap- this is suitable for cost leadership; if you are only in control
pealing to cost-conscious or price-sensitive customers. This of one functional group this is differentiation. For example
is achieved by having the lowest prices in the target market Dell Computer initially achieved market share by keeping
segment, or at least the lowest price to value ratio (price inventories low and only building computers to order via
compared to what customers receive). To succeed at offer- applying Differentiation strategies in supply/procurement
ing the lowest price while still achieving profitability and a chain. This will be clarified in other sections.
3.5. FOCUS STRATEGIES
Cost leadership strategies are only viable for large firms with
the opportunity to enjoy economies of scale and large production volumes and big market share. Small businesses
can be cost focus not cost leaders if they enjoy any advantages conducive to low costs. For example, a local restaurant in a low rent location can attract price-sensitive customers if it offers a limited menu, rapid table turnover and
employs staff on minimum wage. Innovation of products
or processes may also enable a startup or small company to
offer a cheaper product or service where incumbents’ costs
and prices have become too high. An example is the success of low-cost budget airlines who despite having fewer
planes than the major airlines, were able to achieve market
share growth by offering cheap, no-frills services at prices
much cheaper than those of the larger incumbents. At the
beginning for low-cost budget airlines choose acting in cost
focus strategies but later when the market grow, big airlines
started to offer same low-cost attributes, cost focus became
cost leadership! [5]
11
the product or service but is ineffective when its uniqueness
is easily replicated by its competitors.[6] Successful brand
management also results in perceived uniqueness even when
the physical product is the same as competitors. This way,
Chiquita was able to brand bananas, Starbucks could brand
coffee, and Nike could brand sneakers. Fashion brands rely
heavily on this form of image differentiation.
Differentiation strategy is not suitable for small companies.
It is more appropriate for big companies. To apply differentiation with attributes throughout predominant intensity
in any one or several of the functional groups (finance, purchase, marketing, inventory etc..).[5] This point is critical.
For example GE uses finance function to make a difference. You may do so in isolation of other strategies or
in conjunction with focus strategies (requires more initial
investment).[5] It provides great advantage to use differentiation strategy (for big companies) in conjunction with focus
cost strategies or focus differentiation strategies. Case for
Coca Cola and Royal Crown beverages is good sample for
A cost leadership strategy may have the disadvantage of this.
lower customer loyalty, as price-sensitive customers will
switch once a lower-priced substitute is available. A reputation as a cost leader may also result in a reputation for 3.4.1 Variants on the Differentiation Stratlow quality, which may make it difficult for a firm to rebrand
egy
itself or its products if it chooses to shift to a differentiation
strategy in future.
The shareholder value model holds that the timing of
the use of specialized knowledge can create a differentiation advantage as long as the knowledge remains unique.[7]
3.4 Differentiation Strategy
This model suggests that customers buy products or services
from an organisation to have access to its unique knowlDifferentiate the products/services in some way in order to edge. The advantage is static, rather than dynamic, because
compete successfully. Examples of the successful use of the purchase is a one-time event.
a differentiation strategy are Hero, Honda, Asian Paints, The unlimited resources model utilizes a large base of reHUL, Nike athletic shoes (image and brand mark), BMW sources that allows an organisation to outlast competitors by
Group Automobiles, Perstorp BioProducts, Apple Com- practicing a differentiation strategy. An organisation with
puter (product’s design), Mercedes-Benz automobiles, and greater resources can manage risk and sustain profits more
Renault-Nissan Alliance.
easily than one with fewer resources. This provides a shortA differentiation strategy is appropriate where the target term advantage only. If a firm lacks the capacity for concustomer segment is not price-sensitive, the market is com- tinual innovation, it will not sustain its competitive position
petitive or saturated, customers have very specific needs over time.
which are possibly under-served, and the firm has unique
resources and capabilities which enable it to satisfy these
needs in ways that are difficult to copy. These could include
patents or other Intellectual Property (IP), unique technical
expertise (e.g. Apple’s design skills or Pixar’s animation
prowess), talented personnel (e.g. a sports team’s star players or a brokerage firm’s star traders), or innovative processes. Successful differentiation is displayed when a company accomplishes either a premium price for the product
or service, increased revenue per unit, or the consumers’
loyalty to purchase the company’s product or service (brand
loyalty). Differentiation drives profitability when the added
price of the product outweighs the added expense to acquire
3.5
Focus strategies
This dimension is not a separate strategy for big companies
due to small market conditions. Big companies which chose
applying differentiation strategies may also choose to apply
in conjunction with focus strategies (either cost or differentiation). On the other hand, this is definitely appropriate
strategies for small companies especially for those wanting
to avoid competition with big ones.
In adopting a narrow focus, the company ideally focuses on
12
CHAPTER 3. PORTER’S GENERIC STRATEGIES
a few target markets (also called a segmentation strategy or
niche strategy). These should be distinct groups with specialised needs. The choice of offering low prices or differentiated products/services should depend on the needs of
the selected segment and the resources and capabilities of
the firm. It is hoped that by focusing your marketing efforts
on one or two narrow market segments and tailoring your
marketing mix to these specialized markets, you can better meet the needs of that target market. The firm typically
looks to gain a competitive advantage through product innovation and/or brand marketing rather than efficiency. A
focused strategy should target market segments that are less
vulnerable to substitutes or where a competition is weakest
to earn above-average return on investment.
which clearly contradicts with the basis of low cost strategy
and on the other hand relatively standardised products with
features acceptable to many customers will not carry any
differentiation[9] hence, cost leadership and differentiation
strategy will be mutually exclusive.[8] Two focal objectives
of low cost leadership and differentiation clash with each
other resulting in no proper direction for a firm. In particular, Miller[10] questions the notion of being “caught in the
middle”. He claims that there is a viable middle ground between strategies. Many companies, for example, have entered a market as a niche player and gradually expanded.
According to Baden-Fuller and Stopford (1992) the most
successful companies are the ones that can resolve what they
call “the dilemma of opposites”. Furthermore, Reeves and
Routledge’s (2013) study of entrepreneurial spirit demonExamples of firm using a focus strategy include Southwest
Airlines, which provides short-haul point-to-point flights in strated this is a key factor in organisation success, differencontrast to the hub-and-spoke model of mainstream carri- tiation and cost leadership were the least important factors.
ers, United, and American Airlines.
However, contrarily to the rationalisation of Porter, contemporary research has shown evidence of successful firms
practising such a “hybrid strategy”.[11] Research writings
of Davis (1984 cited by Prajogo 2007, p. 74) state that
3.6 Recent developments
firms employing the hybrid business strategy (Low cost and
differentiation strategy) outperform the ones adopting one
Michael Treacy and Fred Wiersema (1993) in their book
generic strategy. Sharing the same view point, Hill (1988
The Discipline of Market Leaders have modified Porter’s
cited by Akan et al. 2006, p. 49) challenged Porter’s conthree strategies to describe three basic “value disciplines”
cept regarding mutual exclusivity of low cost and differenthat can create customer value and provide a competitive
tiation strategy and further argued that successful combinaadvantage. They are operational excellence, product leadtion of those two strategies will result in sustainable comership, and customer intimacy.
petitive advantage. As to Wright and other (1990 cited by
A popular post-Porter model was presented by W. Chan Akan et al. 2006, p. 50) multiple business strategies are reKim and Renée Mauborgne in their 1999 Harvard Business quired to respond effectively to any environment condition.
Review article “Creating New Market Space”. In this ar- In the mid to late 1980s where the environments were relaticle they described a “value innovation” model in which tively stable there was no requirement for flexibility in busicompanies must look outside their present paradigms to find ness strategies but survival in the rapidly changing, highly
new value propositions. Their approach complements most unpredictable present market contexts will require flexibilof Porter’s thinking, especially the concept of differentia- ity to face any contingency (Anderson 1997, Goldman et
tion. They later went on to publish their ideas in the book al. 1995, Pine 1993 cited by Radas 2005, p. 197). After
Blue Ocean Strategy. Thus it is difficult, but not impossible, eleven years Porter revised his thinking and accepted the
to topple a firm that has established a dominant standard.
fact that hybrid business strategy could exist (Porter cited
by Prajogo 2007, p. 70) and writes in the following manner.
3.7 Criticisms of generic strategies
Several commentators have questioned the use of generic
strategies claiming they lack specificity, lack flexibility, and
are limiting.
Porter stressed the idea that only one strategy should be
adopted by a firm and failure to do so will result in “stuck
in the middle” scenario.[8] He discussed the idea that practising more than one strategy will lose the entire focus of
the organization hence clear direction of the future trajectory could not be established. The argument is based on the
fundamental that differentiation will incur costs to the firm
Though Porter had a fundamental rationalisation in his concept about the invalidity of hybrid business strategy, the
highly volatile and turbulent market conditions will not permit survival of rigid business strategies since long-term establishment will depend on the agility and the quick responsiveness towards market and environmental conditions.
Market and environmental turbulence will make drastic implications on the root establishment of a firm. If a firm’s
business strategy could not cope with the environmental and
market contingencies, long-term survival becomes unrealistic. Diverging the strategy into different avenues with
the view to exploit opportunities and avoid threats cre-
3.9. REFERENCES
13
ated by market conditions will be a pragmatic approach for [11] Hambrick, D, “An empirical typology of mature industrial
product environments” Academy of Management Journal,
a firm.[10][12][13] Critical analysis done separately for cost
26: 213-230. (1983)
leadership strategy and differentiation strategy identifies elementary value in both strategies in creating and sustain- [12] Murray, A.I. “A contingency view of Porter’s “generic strateing a competitive advantage. Consistent and superior pergies.” Academy of Management Review, 13: 390-400.
formance than competition could be reached with stronger
(1988)
foundations in the event “hybrid strategy” is adopted. Depending on the market and competitive conditions hybrid [13] Wright, P, “A refinement of Porter’s strategies.” Strategic
Management Journal, 8: 93-101.(1987)
strategy should be adjusted regarding the extent which each
generic strategy (cost leadership or differentiation) should
be given priority in practice.
3.8 See also
• Critique of generic strategies and their limitations, including Porter - “Generic strategies: a substitute for
thinking?"
Orcullo, Jr., N. A., Fundamentals of Strategic Management
3.9 References
[1] Porter, Michael E. (1980). Competitive Strategy. Free Press.
ISBN 0-684-84148-7.
[2] Porter, Michael E. (1985). Competitive Advantage. Free
Press. ISBN 0-684-84146-0.
[3] Kiechel, Walter (2010). The Lords of Strategy. Harvard
Business Press. ISBN 978-1-59139-782-3.
[4] Wright, Peter, Kroll, Mark, Kedia, Ben, and Pringle,
Charles. 1990. Strategic Profiles, Market Share, and Business Performance. Industrial Management, May 1, pp23-28.
[5] Wright, P, “A refinement of Porter’s strategies.”
[6] Gamble, Arthur A. Thompson, Jr., A.J. Strickland III, John
E. (2010). Crafting and executing strategy : the quest for competitive advantage : concepts and cases (17th ed.). Boston:
McGraw-Hill/Irwin. p. 149. ISBN 9780073530420.
[7] William E. Fruhan, Jr., “The NPV Model of Strategy—The
Shareholder Value Model,” in Financial Strategy: Studies
in the Creation, Transfer, and Destruction of Shareholder
Value (Homewood, IL: Richard D. Irwin, 1979)
[8] Porter, M.E., “Competitive Strategy: Techniques for analyzing industries and competitors” New York: The Free Press
(1980)
[9] Panayides, “Unknown” (2003)
[10] Miller, D., “The generic strategy trap” in The Journal of
Business Strategy 13(1):37-41 1992)
Chapter 4
Competitive advantage
Competitive advantage is a business concept describing attributes that allow an organization to outperform its
competitors. These attributes may include access to natural
resources, such as high grade ores or inexpensive power,
highly skilled personnel, geographic location, high entry
barriers, etc. New technologies, such as robotics and information technology, can also provide competitive advantage,
whether as a part of the product itself, as an advantage to
the making of the product, or as a competitive aid in the
business process (for example, better identification and understanding of customers).
and Lynch 1999, p. 45).[3] The study of such advantage
has attracted profound research interest due to contemporary issues regarding superior performance levels of firms in
the present competitive market conditions. “A firm is said
to have a competitive advantage when it is implementing
a value creating strategy not simultaneously being implemented by any current or potential player” (Barney 1991
cited by Clulow et al.2003, p. 221).[4]
The term competitive advantage refers to the ability gained
through attributes and resources to perform at a higher level
than others in the same industry or market (Christensen and
Fahey 1984, Kay 1994, Porter 1980 cited by Chacarbaghi
The goal of cost leadership strategy is to offer products or
services at the lowest cost in the industry. The challenge
of this strategy is to earn a suitable profit for the company,
rather than operating at loss and draining profitability from
Successfully implemented strategies will lift a firm to superior performance by facilitating the firm with competitive
advantage to outperform current or potential players (Passemard and Calantone 2000, p. 18).[5] To gain competitive
advantage, a business strategy of a firm manipulates the various resources over which it has direct control and these re4.1 Overview
sources have the ability to generate competitive advantage
(Reed and Fillippi 1990 cited by Rijamampianina 2003, p.
Michael Porter defined the two types of competitive ad- 362).[6] Superior performance outcomes and superiority in
vantage an organization can achieve relative to its rivals: production resources reflects competitive advantage (Day
lower cost or differentiation. This advantage derives from and Wesley 1988 cited by Lau 2002, p. 125).[7]
attribute(s) that allow an organization to outperform its
competition, such as superior market position, skills, or Above writings signify competitive advantage as the ability
resources. In Porter’s view, strategic management should to stay ahead of present or potential competition. Also, it
be concerned with building and sustaining competitive provides the understanding that resources held by a firm and
the business strategy will have a profound impact on genadvantage.[1]
erating competitive advantage. Powell (2001, p. 132)[8]
Competitive advantage seeks to address some of the criti- views business strategy as the tool that manipulates the recisms of comparative advantage. Porter proposed the the- sources and create competitive advantage, hence, viable
ory in 1985. Porter emphasizes productivity growth as the business strategy may not be adequate unless it possess confocus of national strategies. Competitive advantage rests trol over unique resources that has the ability to create such
on the notion that cheap labor is ubiquitous and natural re- a unique advantage.
sources are not necessary for a good economy. The other
theory, comparative advantage, can lead countries to specialize in exporting primary goods and raw materials that
trap countries in low-wage economies due to terms of trade. 4.2 Generic competitive strategies
Competitive advantage attempts to correct for this issue by
stressing maximizing scale economies in goods and services 4.2.1 Cost leadership strategy
that garner premium prices (Stutz and Warf 2009).[2]
14
4.3. SEE ALSO
all market players. Companies such as Walmart succeed
with this strategy by featuring low prices on key items on
which customers are price-aware, while selling other merchandise at less aggressive discounts. Products are to be
created at the lowest cost in the industry. An example is
to use space in stores for sales and not for storing excess
product.
15
4.3
See also
• Resource-based view
• Core competency
• Economies of scale
• Comparative advantage
• Value chain
4.2.2
Differentiation strategy
The goal of differentiation strategy is to provide a variety of
products, services, or features to consumers that competitors are not yet offering or are unable to offer. This strategy
gives a direct advantage to the company which is able to provide a unique product or service that none of its competitors
are able to offer. An example is Dell which launched masscustomizations on computers to fit consumers’ needs. This
allows the company to make its first product to be the star
of its sales.
4.2.3
Innovation strategy
Porter describes innovation strategy as determining how,
and to what degree, firms use innovation to deliver a unique
mix of value and achieve competitive advantage.[9] The goal
of innovation strategy is to leapfrog other market players by
the introduction of completely new or notably better products or services. This strategy is typical for technology startup companies which often intend to “disrupt” the existing
marketplace, obsoleting the current market entries with a
breakthrough product offering. It is harder for more established companies to pursue this strategy because their
product offering has achieved market acceptance. Apple
has been a notable example of using this strategy with its introduction of iPod personal music players, and iPad tablets.
Many companies invest heavily in their research and development programs to achieve such statuses with their innovations.
4.2.4
Operational effectiveness strategy
The goal of operational effectiveness as a strategy is to perform internal business activities better than competitors,
making the company easier or more pleasurable to do business with than other market choices. It improves the characteristics of the company while lowering the time it takes
to get the products on the market with a great start.
• Differentiation (economics)
• Cost leadership
• Tacit knowledge
4.4
References
[1] Porter, Michael E. (1985). Competitive Advantage. Free
Press. ISBN 0-684-84146-0.
[2] Warf, Frederick P. Stutz, Barney (2007). The World Economy: Resources, Location, Trade and Development (5th ed.).
Upper Saddle River: Pearson. ISBN 0132436892.
[3] Chacarbaghi; Lynch (1999), Competitive Advantage: Creating and Sustaining Superior Performance by Michael E.
Porter 1980, p. 45
[4] Clulow, Val; Gerstman, Julie; Barry, Carol (1 January
2003). “The resource-based view and sustainable competitive advantage: the case of a financial services firm”.
Journal of European Industrial Training 27 (5): 220–232.
doi:10.1108/03090590310469605.
[5] Passemard; Calantone (2000), Competitive Advantage: Creating and Sustaining Superior Performance by Michael E.
Porter 1980, p. 18
[6] Rijamampianina, Rasoava; Abratt, Russell; February, Yumiko (2003). “A framework for concentric diversification
through sustainable competitive advantage”. Management
Decision 41 (4): 362. doi:10.1108/00251740310468031.
[7] Lau, Ronald S (1 January 2002). “Competitive factors and their relative importance in the US electronics and computer industries”. International Journal of
Operations & Production Management 22 (1): 125–135.
doi:10.1108/01443570210412105.
[8] Powell, Thomas C. (1 September 2001). “Competitive
advantage: logical and philosophical considerations”.
Strategic Management Journal 22 (9):
875–888.
doi:10.1002/smj.173.
[9] Saemundsson, R. J. and Candi, M. (2014), Antecedents
of Innovation Strategies in New Technology-based Firms:
Interactions between the Environment and Founder Team
Composition. Journal of Product Innovation Management,
31: 939–955. doi: 10.1111/jpim.12133
16
4.5 Further reading
• Competitive Advantage: Creating and Sustaining Superior Performance by Michael E. Porter
• Creating Competitive Advantage: Give Customers a
Reason to Choose You Over Your Competitors by Jaynie
L. Smith
• Using MIS by David M. Kroenke pages 71–77
• Unraveling The Resource-Based Tangle by Peteraf M.
& Barney J (2003). Managerial and Decision Economics 24. doi:10.1002/mde.1126
• Erica Olsen (2012). Strategic Planning Kit for Dummies, 2nd Edition. John Wiley & Sons, Inc.
• Profit from the Core: Growth Strategy in an Era of Turbulence by Chris Zook and James Allen
• Beyond the Core: Expand Your Market Without Abandoning Your Roots by Chris Zook
• Unstoppable: Finding Hidden Assets to Renew the Core
and Fuel Profitable Growth by Chris Zook
• Value Migration: How to Think Several Moves Ahead
of the Competition by Adrian Slywotzky
4.6 External links
• Competitive Advantage
• Porter and Competitive Advantage
• Competitive Advantage in Business
CHAPTER 4. COMPETITIVE ADVANTAGE
Chapter 5
Value chain
A value chain is a set of activities that a firm operating in a specific industry performs in order to deliver a
valuable product or service for the market. The concept
comes from business management and was first described
and popularized by Michael Porter in his 1985 best-seller,
Competitive Advantage: Creating and Sustaining Superior
Performance.[1]
The idea of the value chain is based on the
process view of organizations, the idea of seeing
a manufacturing (or service) organization as a
system, made up of subsystems each with inputs,
transformation processes and outputs. Inputs,
transformation processes, and outputs involve
the acquisition and consumption of resources money, labour, materials, equipment, buildings,
land, administration and management. How
value chain activities are carried out determines
costs and affects profits.
— IfM, Cambridge[2]
Michael Porter’s Value Chain
5.1
Firm-level
The appropriate level for constructing a value chain is the
business unit,[5] not division or corporate level. Products
pass through a chain of activities in order, and at each activity the product gains some value. The chain of activities
gives the products more added value than the sum of added
values of all activities.[5]
The activity of a diamond cutter can illustrate the difference
between cost and the value chain. The cutting activity may
have a low cost, but the activity adds much of the value to
the end product, since a rough diamond is significantly less
valuable than a cut diamond. Typically, the described value
chain and the documentation of processes, assessment and
auditing of adherence to the process routines are at the core
of the quality certification of the business, e.g. ISO 9001.
The concept of value chains as decision support tools, was
added onto the competitive strategies paradigm developed
by Porter as early as 1979.[3] In Porter’s value chains, Inbound Logistics, Operations, Outbound Logistics, Marketing and Sales, and Service are categorized as primary activities. Secondary activities include Procurement, Human Resource management, Technological Development and In- A firm’s value chain forms a part of a larger stream of acfrastructure (Porter 1985, pp. 11–15).[1][2]
tivities, which Porter calls a value system. A value system,
According to the OECD Secretary-General (Gurría or an industry value chain, includes the suppliers that pro2012)[4] the emergence of global value chains (GVCs) in vide the inputs necessary to the firm along with their value
the late 1990s provided a catalyst for accelerated change in chains. After the firm creates products, these products pass
the landscape of international investment and trade, with through the value chains of distributors (which also have
major, far-reaching consequences on governments as well their own value chains), all the way to the customers. All
as enterprises (Gurría 2012).[4]
parts of these chains are included in the value system. To
17
18
CHAPTER 5. VALUE CHAIN
achieve and sustain a competitive advantage, and to support a firm performs in designing, producing, marketing, delivthat advantage with information technologies, a firm must ering and supporting its product. Each of these activities
understand every component of this value system.
can contribute to a firm’s relative cost position and create a
basis for differentiation.
5.1.1
Primary activities
• Inbound Logistics: arranging the inbound movement
of materials, parts, and/or finished inventory from
suppliers to manufacturing or assembly plants, warehouses, or retail stores
• Operations: concerned with managing the process that
converts inputs (in the forms of raw materials, labor,
and energy) into outputs (in the form of goods and/or
services).
• Outbound Logistics: is the process related to the storage and movement of the final product and the related
information flows from the end of the production line
to the end user
• Marketing and Sales: selling a product or service
and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.
• Service: includes all the activities required to keep the
product/service working effectively for the buyer after
it is sold and delivered.
5.1.2
Support activities
Michael Porter[6]
The value chain categorizes the generic value-adding activities of an organization. The activities considered under this
product/service enhancement process can be broadly categorized under two major activity-sets.
1. Physical/traditional value chain: a physical-world activity performed in order to enhance a product or a
service. Such activities evolved over time by the experience people gained from their business conduct. As
the will to earn higher profit drives any business, professionals (trained/untrained) practice these to achieve
their goal.
2. Virtual value chain: The advent of computer-based
business-aided systems in the modern world has led
to a completely new horizon of market space in modern business-jargon - the cyber-market space. Like
any other field of computer application, here also we
have tried to implement our physical world’s practices to improve this digital world. All activities of
persistent physical world’s physical value-chain enhancement process, which we implement in the cybermarket, are in general terms referred to as a virtual
value chain.
• Procurement: the acquisition of goods, services or In practice as of 2013, no progressive organisation can afworks from an outside external source
ford to remain stuck to any one of these value chains. In or• Human Resources Management: consists of all activi- der to cover both market spaces (physical world and cyber
ties involved in recruiting, hiring, training, developing, world), organisations need to deploy their very best praccompensating and (if necessary) dismissing or laying tices in both of these spaces to churn out the most informative data, which can further be used to improve the
off personnel.
ongoing products/services or to develop some new prod• Technological Development: pertains to the equip- uct/service. Hence organisations today try to employ the
ment, hardware, software, procedures and technical combined value chain.
knowledge brought to bear in the firm’s transformation
Combined Value Chain = Physical Value shown in sample
of inputs into outputs.
below.
• Infrastructure:
consists of activities such as This value-chain matrix suggests that there are a number of
accounting, legal, finance, control, public rela- opportunities for improvement in any business process.
tions, quality assurance and general (strategic)
management.
5.2
5.1.3
Industry-level
Physical, virtual and combined value
An industry value-chain is a physical representation of the
chain
various processes involved in producing goods (and serCompetitive advantage cannot be understood by looking at vices), starting with raw materials and ending with the deliva firm as a whole. It stems from the many discrete activities ered product (also known as the supply chain). It is based on
5.4. SIGNIFICANCE
the notion of value-added at the link (read: stage of production) level. The sum total of link-level value-added yields
total value. The French Physiocrats’ Tableau économique is
one of the earliest examples of a value chain. Wasilly Leontief’s Input-Output tables, published in the 1950s, provide
estimates of the relative importance of each individual link
in industry-level value-chains for the U.S. economy.
5.3 Global value chains (GVCs)
19
commonly associated with export-oriented trade, development practitioners have begun to highlight the importance
of developing national and intra-regional chains in addition
to international ones.[11]
For example, the International Crops Research Institute
for the Semi-Arid Tropics (ICRISAT) has investigated
strengthening the value chain for sweet sorghum as a biofuel
crop in India. Its aim in doing so was to provide a sustainable means of making ethanol that would increase the incomes of the rural poor, without sacrificing food and fodder
security, while protecting the environment.[12]
Main article: Global value chain
5.4
5.3.1
Cross border / cross region value
The value chain framework quickly made its way to the
chains
Often multinational enterprises (MNEs) developed global
value chains, investing abroad and establishing affiliates
that provided critical support to remaining activities at
home. To enhance efficiency and to optimize profits, multinational enterprises locate “research, development, design,
assembly, production of parts, marketing and branding”
activities in different countries around the globe. MNEs
offshore labour-intensive activities to China and Mexico,
for example, where the cost of labor is the lowest.(Gurría
2012)[4] the emergence of global value chains (GVCs) in
the late 1990s provided a catalyst for accelerated change in
the landscape of international investment and trade, with
major, far-reaching consequences on governments as well
as enterprises.(Gurría 2012)[4]
5.3.2
Significance
forefront of management thought as a powerful analysis
tool for strategic planning. The simpler concept of value
streams, a cross-functional process which was developed
over the next decade,[13] had some success in the early
1990s.[14]
The value-chain concept has been extended beyond individual firms. It can apply to whole supply chains and
distribution networks. The delivery of a mix of products
and services to the end customer will mobilize different
economic factors, each managing its own value chain. The
industry wide synchronized interactions of those local value
chains create an extended value chain, sometimes global in
extent. Porter terms this larger interconnected system of
value chains the “value system”. A value system includes
the value chains of a firm’s supplier (and their suppliers all
the way back), the firm itself, the firm distribution channels, and the firm’s buyers (and presumably extended to the
Global value chains (GVCs) in devel- buyers of their products, and so on).
opment
Through global value chains, there has been growth in interconnectedness as MNEs play an increasingly larger role
in the internationalisation of business. In response, governments have cut Corporate income tax (CIT) rates or introduced new incentives for research and development to
compete in this changing geopolitical landscape.(LeBlanc
et al. 6)[7]
Capturing the value generated along the chain is the new
approach taken by many management strategists. For example, a manufacturer might require its parts suppliers to
be located nearby its assembly plant to minimize the cost of
transportation. By exploiting the upstream and downstream
information flowing along the value chain, the firms may try
to bypass the intermediaries creating new business models,
or in other ways create improvements in its value system.
Value chain analysis has also been successfully used in large
petrochemical plant maintenance organizations to show
how work selection, work planning, work scheduling and
finally work execution can (when considered as elements
of chains) help drive lean approaches to maintenance. The
Maintenance Value Chain approach is particularly successValue chain analysis has also been employed in the devel- ful when used as a tool for helping change management as
opment sector as a means of identifying poverty reduction it is seen as more user-friendly than other business process
strategies by upgrading along the value chain.[10] Although tools.
In an (industrial) development context, the concepts of
Global Value Chain analysis were first introduced in the
1990s (Gereffi et al.)[8] and have gradually been integrated
into development policy by the World Bank, Unctad,[9] the
OECD and others.
20
A value chain approach could also offer a meaningful alternative to evaluate private or public companies when there
is a lack of publicly known data from direct competition,
where the subject company is compared with, for example, a known downstream industry to have a good feel of its
value by building useful correlations with its downstream
companies.
5.5 Use with other Analysis Tools
CHAPTER 5. VALUE CHAIN
5.7
Value Reference Model
A Value Reference Model (VRM) developed by the
trade consortium Value Chain Group offers a proprietary information model for value chain management, encompassing the process domains of product development,
customer relations and supply networks.
The integrated process framework guides the modeling,
design, and measurement of business performance by
uniquely encompassing the plan, govern and execute requirements for the design, product, and customer aspects
of business.
The Value Chain Group claims VRM to be next generation
Once value has been analysed and the contributing parts Business Process Management that enables value reference
of the organisation have been identified, other models can modeling of all business processes and provides product exbe used in conjunction with the Value Chain to assess how cellence, operations excellence, and customer excellence.
these areas can either be improved or capitalised upon.
Six business functions of the value chain:
For example, a SWOT analysis can be used within the “Outbound Logistics” Function to understand what its strengths
• Research and development
and weaknesses are, and what opportunities there may be
to improve that area, or identify the threats to what may be
• Design of products, services, or processes
a critical part of the value delivery system.
• Production
Equally, other models can be used to assess performance,
risk, market potential, environmental waste, etc.
• Marketing and sales
• Distribution
This guide to the right provides the levels 1-3 basic building
blocks for value chain configurations. All Level 3 processes
in VRM have input/output dependencies, metrics and practices. The VRM can be extended to levels 4-6 via the ExThe Supply-Chain Council, a global trade consortium in tensible Reference Model schema.
operation with over 700 member companies, governmental, academic, and consulting groups participating in the
last 10 years, manages the Supply-Chain Operations Reference (SCOR), the de facto universal reference model for 5.8 See also
Supply Chain including Planning, Procurement, Manufac• Agricultural value chain
turing, Order Management, Logistics, Returns, and Retail;
Product and Service Design including Design Planning, Re• Beneficiation
search, Prototyping, Integration, Launch and Revision, and
Sales including CRM, Service Support, Sales, and Con• Business unit
tract Management which are congruent to the Porter frame• Calculating Demand Forecast Accuracy
work. The SCOR framework has been adopted by hundreds of companies as well as national entities as a standard
• Delta Model
for business excellence, and the U.S. Department of Defense has adopted the newly launched Design-Chain Op• Demand chain
erations Reference (DCOR) framework for product de• Industry information
sign as a standard to use for managing their development
processes. In addition to process elements, these reference
• Marketing strategy
frameworks also maintain a vast database of standard process metrics aligned to the Porter model, as well as a large
• Porter 5 forces analysis
and constantly researched database of prescriptive universal
• Porter generic strategies
best practices for process execution.
5.6 SCOR
5.10. FURTHER READING
21
• Strategic management
[11] Microlinks (2009) [Value Chain Development Wiki http://
microlinks.kdid.org/vcwiki] Washington, D.C.: USAID.
• Value grid
[12] Developing a sweet sorghum ethanol value chain ICRISAT,
2013
• Value
• Value migration
[13] Martin, James (1995). The Great Transition: Using the
Seven Disciplines of Enterprise Engineering. New York:
AMACOM. ISBN 978-0-8144-0315-0., particularly the
Con Edison example.
• Value network
• Value shop
[14] “The Horizontal Corporation”. Business Week. 1993-12-20.
Human Resource value chain is to help improve business
performance by applying the full capabilities of people.
5.9 References
[1] Porter, Michael E. (1985). Competitive Advantage: Creating
and Sustaining Superior Performance. New York.: Simon
and Schuster. Retrieved 9 September 2013.
[2] “Decision Support Tools: Porter’s Value Chain”. Cambridge
University: Institute for Manufacturing (IfM). Retrieved 9
September 2013.
[3] Porter, Michael E. (1979). “How competitive forces shape
strategy” (PDF). Harvard Business Review. Retrieved 9
September 2013.
[4] Angel Gurría (5 November 2012). The Emergence of Global
Value Chains: What Do They Mean for Business. G20 Trade
and Investment Promotion Summit. Mexico City: OECD.
Retrieved 7 September 2013.
[5] Michael E. Porter (1985) Competitive advantage: creating
and sustaining superior performance. The Free Press
[6] Ghemawat, Pankaj (Spring 2002). “Competition and Business Strategy in Historical Perspective”. Business History Review (Harvard Business Review).
[7] Pierre LeBlanc; Stephen Matthews; Kirsti Mellbye (4
September 2013). The Tax Policy Landscape Five Years
after the Crisis (Report). OECD Taxation Working Papers.
France: OECD. Retrieved 7 September 2013.
[8] Gereffi, G., (1994). The
Global Commodity Chains:
seas Production Networks.
niewicz (Eds), Commodity
Westport, CT: Praeger.
Organisation of Buyer-Driven
How US Retailers Shape OverIn G. Gereffi, and M. KorzeChains and Global Capitalism.
[9] http://unctad.org/en/PublicationsLibrary/diae2013d1_en.
pdf
[10] Jonathan Mitchell, Christopher Coles, and Jodie Keane (December 2009). “Upgrading Along Value Chains: Strategies
for Poverty Reduction in Latin America” (PDF). Comercio y
Pobreza en Latino América (COPLA). Briefing Paper (London: Overseas Development Institute).
5.10
Further reading
• Raphael Kaplinsky; Mike Morris (1 November 2001).
A Handbook for Value Chain Research (PDF) (Report). International Development Research Centre.
Retrieved 9 September 2013.
5.11
External links
• Media related to Value chain diagrams at Wikimedia
Commons
• Using a Value Chain Analysis in Project Management
22
CHAPTER 5. VALUE CHAIN
5.12 Text and image sources, contributors, and licenses
5.12.1
Text
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Mordechai~enwiki, Roo72, Bender235, Mdd, Arthena, Joolz, Pangguanzhe, Jehochman, FlaBot, Naraht, Nivix, YurikBot, BrainyBroad, Welsh,
Wgaultier, BirgitteSB, Tony1, DeadEyeArrow, Ashish dutt, Arthur Rubin, Anton n, SmackBot, Elonka, Gilliam, Chris the speller, Kaiwanxiao, Ras, A. B., Can't sleep, clown will eat me, Sumahoy, LukeStuartStar, Asimjanjua, Hmbr, Ckatz, Astuishin, Pbui, Hu12, JHP, IvanLanin,
Randhirreddy, Vinz83, Neelix, Cydebot, QuintEssence, David A. Victor, Dancter, Shers7, Thijs!bot, Mereda, AntiVandalBot, Connormah,
Hroðulf, Waacstats, Miro.gal, Cmontero, Byronsharp, Johnpacklambert, Ontarioboy, Sford, VolkovBot, Pfitzpat, GillesAuriault, A4bot, Beibicris, Broadbot, BotKung, Lamro, Bin2k1, BOTijo, Farcaster, Deconstructhis, BridgeBuilderKiwi, Ttonyb1, Xymmax, Jojalozzo, Yone Fernandes, Boatearth, Huggi, Mr. Stradivarius, Ptomasek, ClueBot, LAX, PipepBot, Giacomo Hawkins, Fsg123, Blanchardb, Lbertolotti, Ktr101,
Excirial, Jimgettman, Aleksd, AgnosticPreachersKid, Webseos, Jmkim dot com, Good Olfactory, Addbot, Some jerk on the Internet, Manideep
shrivastava, Jncraton, BredMiller, Zarcadia, CanadianLinuxUser, Tassedethe, Lightbot, Throning, Cptjc, Luckas-bot, Yobot, EchetusXe, Ptbotgourou, Grochim, Wangxuening, Sumivec, Materialscientist, Truth or consequences-2, Xqbot, LanaZP, Omnipaedista, Franckgintrand, LucienBOT, DrilBot, 3centsoap, Padstow11, 777sms, Kpbizbuzz, Keegscee, RjwilmsiBot, Amigao, Windauboy, EmausBot, Dinhtuydzao, Cecody, Millbart, Bluegreen1011, Vtob, ClueBot NG, MerlIwBot, BG19bot, Professor Bollox, AvocatoBot, Dipankan001, Warsilver, Redbuggt,
Jeremy112233, Spender77, Schaefer.michael, RichardKPSun, Euroflux, Senington, Bahooka, New worl, Whizz40, LawrencePrincipe, InfoDataMonger, Marcisloboy, LindseyH140, KasparBot, Stabila711 and Anonymous: 180
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Anome, Edward, Michael Hardy, Tim Starling, Kku, Ronz, Cherkash, Mydogategodshat, Molinari, Topbanana, Chuunen Baka, Chris Roy,
Puckly, Starpeak, Snowdog, Varlaam, Macrakis, Pinnecco, Diwann, JoJan, DNewhall, Sam Hocevar, JuergenL, Discospinster, Rich Farmbrough, Notinasnaid, Bender235, Cretog8, Maurreen, SpeedyGonsales, Mdd, Alansohn, Andrewpmk, AzaToth, Goodoldpolonius2, Abesford,
Sleigh, Woohookitty, RHaworth, Bluemoose, Mandarax, V8rik, Jeffmcneill, Yamamoto Ichiro, DDerby, Soyweiser, YurikBot, RobotE, SpuriousQ, Moe Epsilon, Speedoflight, Wknight94, Phgao, Mike1024, VodkaJazz, Fsiler, Berolina~enwiki, Dublinclontarf, Katieh5584, Eduardo89,
Theqbe, SmackBot, Pbb, Amit A., McGeddon, Eskimbot, IPTF, Yamaguchi , Gilliam, Hmains, Taelus, JustThisGuy, A. B., Rrburke, Wolf87,
Kcordina, Sam mishra, Mosca, Plustgarten, Bigmantonyd, Hgilbert, Bobby Ninan, Kuru, Ben Moore, Beetstra, Ehheh, Alfy Alf, Hu12, Cnbrb,
JoeBot, JHP, IvanLanin, Eastlaw, Ale jrb, Trumfrog31, N2e, Lachambre, Cydebot, Jesseoneill, Grahams Child, Epbr123, Fneep, Pajz, Marek69,
Nick Number, Compaqevo, Porqin, AntiVandalBot, Pan1987, Seaphoto, Mal4mac, RDSeabrook, JAnDbot, Barek, Txomin, East718, .anacondabot, Gildos, Cmontero, MartinBot, Yasy~enwiki, R'n'B, LedgendGamer, J.delanoy, RankRhyme, Darth Mike, Pgrieg, Philip Trueman, Jacob
Lundberg, Anna Lincoln, WetStrike, JohnnyO1986, Lamro, Turgan, MNewton2, Farcaster, Logan, Gerakibot, Hull MIS, Smsarmad, Yintan,
Happysailor, Flyer22 Reborn, Jojalozzo, Jarda-wien, Pm master, Sagarjethani, Johnanth, Svick, Denisarona, ClueBot, GorillaWarfare, The
Thing That Should Not Be, Blanchardb, Tomeasy, Lartoven, Rhododendrites, Eustress, Aleksd, Leandropls, Hollih, Jmkim dot com, Addbot,
BredMiller, Feťour, MrOllie, Download, Grandefromage, Andreasmperu, Fraggle81, Mmxx, Atgnclk, W2wlink, Randomexcess, Materialscientist, Porterfan1, Hassan210360, Haltendehand, SPKirsch, Aarellanor, AJCham, Erik9bot, Dougofborg, Alinashath, FrescoBot, Wikipe-tan,
Epgbm2212377, TheLinkState, Gaddsj, TTGL, Cannolis, Þjóðólfr, Carrickdb, Trappist the monk, DixonDBot, Reach Out to the Truth, Jisibt,
Acwhelan C109, Shashika 86, Jmrobinson c109, Cmacken c109, Ambrady C109, Tabrowne C109, Gayeni c109, Refarrell C109, Mdlukas C109,
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ClueBot NG, Gareth Griffith-Jones, Mmarinova, Dmcnabb50, Jb3141, Loginnigol, Cdottorini, MerlIwBot, Sowsnek, Mark Arsten, Sélim0877,
Minsbot, AJuice42, BattyBot, Pratyya Ghosh, Denis Fadeev, Numbermaniac, Mgibby5, Mudith.himwan, The Anonymouse, Epicgenius, Tentinator, DavidLeighEllis, Bahooka, Khengteck, Manul, Epic Failure, SarahPope101, LawrencePrincipe, Speedee111, Biblioworm, Tansudasli,
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Angieprk, Alfy Alf, Bjwtax, Conordjpc, Christian75, Alaibot, Wee paddy, WinBot, Zappernapper, Kuteni, Time3000, VoABot II, Tgeairn,
Svetovid, STBotD, Ajarnhod, Farcaster, SieBot, Caltas, Yintan, Keepscases~enwiki, Sfan00 IMG, ClueBot, Amh15, The Thing That Should
Not Be, Tamanpowell, Eeekster, Fdw1203, Raxya, Stickee, Zirguezi, Addbot, Tharinda jagathsiri, Zorrobot, Yobot, Freikorp, Materialscientist,
LilHelpa, Jacob eos, Joaquin008, MrChrisRodriguez, Kuschelfraktion, Tarunsam26, Jrdsmith, Hongleili, Vrenator, Reaper Eternal, Tbhotch,
Theoboyd, Whisky drinker, Onel5969, John of Reading, Dewritech, Winner 42, Wikipelli, ClueBot NG, Nghosal, Amcgreagor, MusikAnimal,
JonPoley, BattyBot, Denis Fadeev, Xyzbb1253, Blukas~enwiki, LawrencePrincipe, Tansudasli, Harry jones999 and Anonymous: 161
• Competitive advantage Source: https://en.wikipedia.org/wiki/Competitive_advantage?oldid=681126287 Contributors: The Anome, Enchanter, SimonP, Edward, Kku, Ronz, Rob Hooft, Jonik, Mydogategodshat, Jecar, Timrollpickering, Pgreenfinch, Ukexpat, Duja, RJHall, Lycurgus, Reinyday, Maurreen, Rajah, Pearle, Civvi~enwiki, Compo, Wtmitchell, Bobrayner, SCEhardt, Paulhoff, BD2412, Ryan Norton, Rjwilmsi,
FlaBot, Phantomsteve, LarsMouritzen, Tony1, FODA Consulting, GraemeL, That Guy, From That Show!, KnightRider~enwiki, SmackBot,
Thegn, A. B., Marketsense, Luc., HDarke, Kuru, Robofish, Makyen, Jgauthier96, Hu12, Colonel Warden, Minukumar, Rubisco~enwiki, CapitalR, Eastlaw, JForget, Brad101, Spinacia, Vertium, Compaqevo, CZmarlin, Skomorokh, Hroðulf, VoABot II, NAHID, R'n'B, Engelo, Juliancolton, Bonadea, VolkovBot, Tpk5010, Madhero88, 88wolfmaster, Lamro, Farcaster, Struway, Jean-Louis Swiners, SieBot, BotMultichill,
SheepNotGoats, Plinkit, Triwbe, Yintan, Toddst1, Chutinonp, Oxymoron83, EconomicTiger, Akldawgs, Tiredofscams, ClueBot, Rumping,
Binksternet, The Thing That Should Not Be, Crity0327, Xenon54, Dbeditor, Excirial, MrFella, Robert-McKinney, DumZiBoT, Addbot, Mamies,
5.12. TEXT AND IMAGE SOURCES, CONTRIBUTORS, AND LICENSES
23
Binary TSO, MrOllie, Profitoftruth85, Tharinda jagathsiri, Tide rolls, VP-bot, Yobot, Senator Palpatine, Revr J, AnomieBOT, Rubinbot, Materialscientist, Pintail1626, Xqbot, Omnipaedista, The Wiki Octopus, Shadowjams, Runningit, Aleodor, Footyfanatic3000, I dream of horses,
MastiBot, Hessamnia, Trappist the monk, Vrenator, Fgiones, SineFlux, EmausBot, WikitanvirBot, GoingBatty, NotAnonymous0, Sp33dyphil,
Ilonadubra, Sheeana, Cecody, Rajeearul, Autoerrant, ClueBot NG, Gekko1, Infoshelter, Widr, HMSSolent, Wbm1058, Broscomere, Ninney,
BattyBot, DoctorKubla, Dexbot, CaSJer, ToddBallowe, Jamesmcmahon0, Melonkelon, New worl, GemHill, Monkbot, Phoenix 123 abc, Ramdas
nadar, Cxr341, Oliviad91, Harish.pentapalli and Anonymous: 166
• Value chain Source: https://en.wikipedia.org/wiki/Value_chain?oldid=683589729 Contributors: JeLuF, Deb, Dwheeler, Ihcoyc, Ronz, Mydogategodshat, Secretlondon, Robbot, Xanzzibar, Ianhowlett, Edcolins, Karol Langner, Arnauldvm, Rich Farmbrough, MBisanz, Maurreen,
Towel401, Mdd, Thebeginning, Andrewpmk, Yuckfoo, Alai, Woohookitty, Jeff3000, Pictureuploader, BD2412, Rjwilmsi, Bhadani, Mark83,
Bgwhite, Wavelength, Azucar~enwiki, Brandon, User27091, Zzuuzz, Semperveritas, KnightRider~enwiki, SmackBot, Wellspring, Wahming,
DHN-bot~enwiki, Sam mishra, Mosca, Cloud02, Spiritia, Kuru, Alfredxz~enwiki, Beetstra, De5thWavE, Charles T. Betz, Majora4, Philippschaumann, Markchockal, Edward Vielmetti, Slazenger, Gogo Dodo, Dpcoka, Chrislk02, Yaukelv, Kathovo, RichardVeryard, AntiVandalBot, Nicholas0, Widefox, Pan1987, IrishPete, Slapierre, Snowynight, SiobhanHansa, Magioladitis, VoABot II, Jan Henry S. Fosse, Nikolaj Christensen, Somosnegocios, Abatasigh, Pikolas, Davidjcmorris, R'n'B, CommonsDelinker, Lucianoweb, Oceanflynn, Sallyw, KylieTastic, Daviticus82, Philip Trueman, Marekzp, SueHay, Someguy1221, Littlealien182, Broadbot, Joe3210, UnitedStatesian, Madhero88, Lamro,
Wikigregor~enwiki, Anitanesbitt, Farcaster, Mh 007, SieBot, Nopetro, Josewe~enwiki, Pm master, Nancy, Nimbusania, B A Thuriaux, ClueBot, Michaeluram, ScottKarl, Mgharvey2, Boing! said Zebedee, Lbertolotti, Ariscor, Ottre, Pot, Burnsej, SchreiberBike, Aleksd, Knezovjb,
XLinkBot, Dthomsen8, Sucomimus, Addbot, Iamtheuser, SkipLumley, BrianKnez, Lightbot, Luckas-bot, Yobot, Tohd8BohaithuGh1, TaBOTzerem, Vcgeditor1, AnomieBOT, SuperSecret, Ulric1313, Materialscientist, Neurolysis, Gsmgm, Porterfan1, Capricorn42, Lonniev, Hmsegh,
Agricmarketing, Omnipaedista, Aarellanor, Shadowjams, ShahidAliBaig, Roundtheworld, Haeinous, Louperibot, DrilBot, Pinethicket, Jonesey95, Mh007, Pikiwyn, Maxbhenry, Jandalhandler, Gwinnjasone, Fralmaas, Diannaa, Onel5969, LcawteHuggle, EmausBot, SamantaGhezzi,
Dewritech, Hindsighter, DeltoidNoob, ZéroBot, Josve05a, Donner60, ClueBot NG, Mleal001, Snotbot, Talhasalampk, Rezabot, Widr, Helpful
Pixie Bot, Dmckinn, BG19bot, Pine, Uos.ahmed34, Northamerica1000, Spochic, Scmbwis, Hong Gang, Khazar2, Ashleyaak, IjonTichyIjonTichy, Jpugmire24, FoCuSandLeArN, Denis Fadeev, OrganizedGuy, Ayirpnura, Vibrantmatter, Rmdlean~enwiki, Pauljackson68, Indiamonsoon, Vieque, Vcallaway, Ayesh aslam and Anonymous: 269
5.12.2
Images
• File:Ambox_important.svg Source: https://upload.wikimedia.org/wikipedia/commons/b/b4/Ambox_important.svg License: Public domain
Contributors: Own work, based off of Image:Ambox scales.svg Original artist: Dsmurat (talk · contribs)
• File:Commons-logo.svg Source: https://upload.wikimedia.org/wikipedia/en/4/4a/Commons-logo.svg License: ? Contributors: ? Original
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• File:Elements_of_Industry_Structure.svg Source:
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• File:Emblem-money.svg Source: https://upload.wikimedia.org/wikipedia/commons/f/f3/Emblem-money.svg License: GPL Contributors:
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• File:Michael_Porter’{}s_Three_Generic_Strategies.svg Source: https://upload.wikimedia.org/wikipedia/commons/0/0b/Michael_Porter%
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• File:Michael_porter.jpg Source: https://upload.wikimedia.org/wikipedia/commons/3/3a/Michael_porter.jpg License: CC BY-SA 3.0 Contributors: Own work Original artist: Yesicavaldez
• File:Porter_Value_Chain.png Source: https://upload.wikimedia.org/wikipedia/commons/7/70/Porter_Value_Chain.png License: CC BY-SA
3.0 Contributors: Own work Original artist: Dinesh Pratap Singh
• File:Question_book-new.svg Source: https://upload.wikimedia.org/wikipedia/en/9/99/Question_book-new.svg License: Cc-by-sa-3.0 Contributors:
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• File:Strategy_Concept.svg Source: https://upload.wikimedia.org/wikipedia/commons/6/68/Strategy_Concept.svg License: CC BY-SA 3.0
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5.12.3
Content license
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